Investors run way from the digital economy

By PETER WHITE

Published: 27 October, 2011

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Right now investors have quite a tough time and there are three examples in this week's issue of Faultline - Netflix, Pace and the major TV manufacturers, that all give pause to what we once bulk standard, investments. With investors it's all about confidence.

Netflix is doing great and despite a price increase of over 50% it has increased its total unique customers, grown revenues and despite launching in 43 Latin American countries, spending double on streaming content and planning to launch in the UK and Ireland, it remain profitable. So naturally investors have dumped the stock like there was no tomorrow.

Pace has simply said it might have some trouble getting its hands on disk drives for its set tops, despite having watertight contracts with two of the largest disk drive makers in the world, Western Digital and Seagate, who both have had set back from flooding in Thailand. Naturally Pace, the largest set top maker in the world has become an investment pariah overnight.

Investors have been warned for years that TV manufacturers are over-investing in LCD and TV plants and with the arrival of two major new TV plants in China, and a downturn in sales, prices are falling to the floor, and Philips can't give away its TV making subsidiary.

These are all aspects of the digital media economy - at different stages, the forefront of a new revolution, the tight margins of a global offering and the back end of an aging technology - but they are uncertainties for investors, who instead put their money into blue chips and national debt bonds, which of course are even less certain.

At Faultline we have been an unflagging supporter of Netflix and although its decision to increase prices and separate DVD online rental from streaming income was clearly mismanaged, we continue to see little but good eventually coming from the exercise, after an initial period when enraged customers cancel. But investors are having no truck with that version of events and after its numbers came out this week, the stock crashed once more, losing about a third of the share value in a few hours. We wonder if Netlfix will be able to laugh about this in a year, or if they will still be touched with the after effects of a malcontented investment community.

For a full analysis of this subject go to www.rethinkresearch.biz where this article is free.